Which industries will China dominate?

A few key principles.

Photo by Mohammad Fathollahi on Unsplash

Nothing like the current era of international industrial competition has ever been seen before. Nothing like modern distributed supply chains even existed until the last few decades. The competition between the U.S., Japan, and Europe over cars and semiconductors in the 80s and 90s is probably the closest parallel, but the differences are vast — this time, the competitors are not allies, but rivals, on opposite sides of a new cold war. And the impacts of new technologies — especially green energy and AI — is highly uncertain. The factors at play include:

• Export controls

• Government-directed reshoring efforts and other industrial policies

• Massive R&D into emerging technologies

• Rising Chinese costs and other pre-existing economic trends

So the question of which industries China will dominate, which will go to the developed democracies in the U.S., Europe, and East Asia, and which will be offshored to developing countries like India and Vietnam, is a very hard one to answer. But it’s also a very important question, whether you’re an investor, a businessperson, or a government policymaker trying to affect the outcome. The flip side of “Which industries will China dominate?” is “Which industries will the U.S. and its allies fail to dominate?”.

In principle, you might be able to tackle this question with a very complex econ model and a whole lot of data — or perhaps with machine learning. I’ll certainly keep an eye out for efforts in that direction.

But in the meantime, I think a few basic contours and principles are starting to make themselves clear. China’s two key advantages are disruption and scale; this will allow it to dominate many new industries where existing stores of knowledge aren’t a big advantage, and older technologies where producing large amounts cheaply is key.

China will dominate where it can leverage disruption